INDIA BONDS-10-yr yield sees biggest weekly jump in 4 months on RBI rate hike bets

MUMBAI, Sept 23 (Reuters) - Indian government bond yields surged for a second straight week, as the hawkish stance of the U.S. Federal Reserve fuelled expectations of the Reserve Bank of India keeping pace with larger and longer rate hikes.

The benchmark Indian 10-year government bond yield ended at 7.3926%, after closing at 7.3118% on Thursday. The yield ended at its highest level in two months, rising 12 basis points this week, its biggest such move since the week ended May 6. It had risen 10 bps last week.

A 50 bps rate hike in the next policy meeting would ensure "RBI does not lag the Fed's pace by much," ICICI Securities Primary Dealership said in a note. "In the same vein, a terminal rate of 6.5% would maintain a semblance of interest rate differential and provide some cushion to rupee."

The Fed raised interest rate by 75 basis points earlier this week - its third such increase - and Chairman Jerome Powell said central bank officials were "strongly resolved" to bring down inflation.

The U.S. Treasury yield curve inversion deepened further, amid widespread expectations that the Fed will to continue its hawkish stance toward hiking rates, as it battles persistently high inflation. The benchmark 10-year U.S. yield jumped to 3.7760%, its highest in over 11 years.

The Reserve Bank of India's policy decision is due on Sept. 30, and a slim majority of economists in a Reuters poll are expecting half a percentage point hike, while some others see a smaller 35 bps rise.

Twenty-six of the 51 economists in a Reuters poll predicted the RBI to go for a 50 basis-point hike, taking the repo rate to 5.90%. Another 20 predicted a 35 bps increase. The remaining five pencilled in more modest increases, ranging from 20 to 30 bps.

The RBI has already hiked repo rate by 140 bps since May, including two back-to-back 50 bps moves in June and August to control inflation, which has stayed above the central bank's tolerance level for eight straight months.

Earlier this week, Deutsche Bank said it expects inflation to rise to a five-month high of 7.4% in September, from 7% in August. (Reporting by Dharamraj Lalit Dhutia; Editing by Dhanya Ann Thoppil)